I hear this a lot – “What are closing costs when buying or selling a home?” 

Before buying OR selling it’s best to have an understanding of what closing costs are and who pays them. 

Both the buyer and seller have their own costs associated with closing on a home but the amount and how they are paid vary from sale to sale. 

Let’s dig into buyer-related closing costs first.
Are you a seller? Check out the accompanying seller’s guide to closing costs! 

Buyer Closing Costs 

When a buyer is purchasing a home they are responsible for a down payment (anywhere from 0-20%, typically) AND closing costs of usually 3-6%. 

Who knew, right? 

You’ve been saving hard, counting all the extra pennies, skipping coffees, and you finally have 10% to put down to buy your dream home. Now you’re thinking, “What the heck… I need MORE money?!” 

So you’re wondering- what am I actually paying for, can the seller pay some of it or can it be gifted from someone? 

Keep reading for answers to all of your questions. 

How much are closing costs and what are they for? 

Typically you can expect anywhere from 3% to 6% of the purchase price in closing costs depending on your loan and the amount of insurance coverage you decide on. 

Buyer’s closing costs consist of: 

1. Fees you pay the lender for doing their work to get you the loan. 
2. Fees to the title company for getting a clear title, title insurance if you choose to purchase it, and attorney fees.
3. Things we Realtor’s call “prepaids,” which are payments toward your insurance policies (homeowner’s and flood) and taxes.
   

At the closing you are “prepaying” or paying up front your insurance policy. You then might ask, why am I paying for those each month as well? Once you prepay for your insurance policies, you have insurance for the next year. As you pay your mortgage each month, you are paying for next year’s insurance. When it becomes due a year from now, it has already been saved in an escrow account by your mortgage company and you don’t have to think or stress about it at all. 

Can you still buy a home if you haven’t saved for closing costs? 

Yes you can!! You have a couple of options: 

1. You can put a smaller amount down and use the extra money for closing costs. Example: You’ve saved for 10%
   down, but instead consider doing a 5% down loan so you
   have extra cash for closing costs.
   
2. You can get some or all of the closing costs elsewhere
   such as a gift from a family member.
   
3. You can ask the seller to pay for some of your closing
   costs.
   

Note that your loan may impact what amount of closing cost you can ask for. At the same time, since closing costs will vary depending on your insurance coverage, sellers typically won’t agree to just pay ALL closing costs. In your offer to purchase, it is best to ask for a certain amount ($2k, $5k, etc) depending on what you may need or want. 

Keep in mind: a seller may not be willing to accept as low of a contract price if they are paying for some of your closing costs. For the most part, sellers are looking at their takeaway amount after they have paid their fees when considering offers. 

Let’s go through an example: 

Seller has a home up for sale for $200k after their own fees, and paying off their mortgage, they want to walk away with $50k. In order to get that $50k, their bottom sales price to accept is $195k. 

A buyer comes in and offers $193k and asks the seller to pay $3k in the buyer’s closing costs. The seller will look at this offer as $190k b/c they’re paying $3k in closing costs they hadn’t budgeted for. 

In order for the seller to get their $50k, or bottom line of $195k, they may counter the buyer at $198k and offer to pay $3k of the buyer’s closing costs. 

Whew! 

Look I get it. This is a lot to take in.
Have questions or want to walk through your personal situation with me? Send an email to robyn@robynsbruno.com. I’d love to hear from you!